When it comes to an abundance of natural resources, Australia is a world leader. And it’s not just coal, gold, iron ore and natural gas. No, Australia is also rich in lithium.
You may have followed the lithium story over the past few years.
The world’s lightest metal, and a highly combustible one at that, has long been used in the ceramics and glass industries. But in recent years lithium has seen interest and demand soaring because of its potential for energy storage. Namely in lithium-ion batteries.
The growth in electric vehicles and in-home power storage for solar and wind energy practically ensures a strong demand for lithium in the foreseeable future. Chile’s SQM chief executive Patricio Solminihac, for example, expects global lithium demand to continue growing by a healthy 20% per year.
Of course, sudden tech breakthroughs — think hydrogen fuel cells — could unexpectedly knock the stuffing out of lithium demand. But that’s an outlying chance in the mid-term outlook.
Nonetheless, lithium prices have been falling throughout 2018. The decline has nothing to do with a lack of demand, but one of ramped up supply. And much of it is coming out of Australia.
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As The Australian Financial Review notes:
‘Surging lithium exports from Australia will likely drive prices lower over the next six months, according to one of the world’s biggest producers of the boom commodity.
‘The commentary from Chile’s Sociedad Quimica y Minera (SQM) echoes predictions made eight months ago by the likes of Roskill and UBS… and industry intelligence firm Roskill believes the collective surge in exports could ensure Australia’s market share rises as high as 62 per cent of the global lithium market in 2018.’
A 62% slice of the global market is nothing to sneeze at. But Australia’s producers may want to sit in on OPEC’s next meeting if they want to avoid an even greater glut.
You can see the marked downturn in lithium prices commencing at the start of this year in the chart below:
Source: Trading Economics
The tumbling price has already impacted some of Australia’s largest lithium stocks in 2018, including Orocobre Limited and Galaxy Resources Limited, both of which saw their stock soaring in 2017.
But clearly there’s money to be made in lithium. And perhaps 2018’s share price routs of Orocobre and Galaxy Resources mark an end to their investors’ woes. Much of that will depend on the competition and how much new product is rushed to market.
It’s a good reminder of the importance of getting in on breaking trends early, rather than waiting for the hype to build first. By the time your neighbours have bought and profited from a stock and your partner is nagging you to buy a bundle of shares, it’s usually too late.
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